Corporate social responsibility disclosure and market valuation: evidence from Spanish listed firms

Using a sample of listed Spanish companies pertaining to the IBEX35 index for the period 2007–2011, this paper examines whether those firms with higher CSR disclosure ratings are more valued by market participants. This study also complements the literature addressing the value relevance of CSR disclosure by further analyzing not only the direct effects of CSR reporting on stock prices but also its indirect effects through its interaction with main accounting variables (i.e., earnings and book value of equity). CSR reports can also affect stock price indirectly because the sustainability report may be perceived by investors to be a source of further and complementary information regarding the nature, composition and trends of the traditional value-relevant accounting variables. Finally, this study also analyzes whether CSR disclosure by firms operating in environmentally-sensitive industries is assessed differently by market participants than CSR disclosure by companies operating in other industries. By using a modified Ohlson (Contemp Account Res 1:661–687, 1995) model, it is found that CSR disclosure do have both a direct and indirect effect on stock prices by modifying the value-relevance of earnings and book value of equity. Moreover, CSR disclosure by companies operating in environmentally-sensitive industries is associated with higher market valuations than CSR disclosure by companies operating in nonsensitive industries. This may be due to the fact that CSR disclosures provide information that allow investors to make better assessments of the increased risk related to potential litigation and future environmental liabilities, thereby reducing information asymmetries and the risk of adverse selection.